Participants in a 401(k) plan offered by Wells Fargo & Co. sued the company and fiduciaries, alleging that plan executives violated ERISA by using several proprietary investments and failing to explore cheaper and better-performing options.
The defendants chose investments "that benefited Wells Fargo & Co. and its subsidiaries and executives," said the complaint filed March 13 in a U.S. District Court in San Francisco.
"Defendants selected and retained Wells Fargo products over materially identical, yet cheaper, non-proprietary alternatives," said the complaint in the case, Becker vs. Wells Fargo & Co. et al.
They "selected Wells Fargo products that had no performance history that could form the basis of a fiduciary's objective decision-making process," said the plaintiffs in seeking class-action status. The defendants also "failed to remove proprietary funds despite sustained under performance."
Among the specific products criticized by the plaintiff was a target-date series using a collective investment trust that was added to the plan lineup in 2016. This series "had no prior performance history or track record which could demonstrate that they were appropriate funds for the plan," the lawsuit said. Still, the plan mapped $5 billion of participants' assets into this option from the existing target-date series.
The plaintiff argued that a "prudent fiduciary process" requires at least a three-year performance history of an investment before it should be considered for a plan lineup. The lawsuit also criticized fiduciaries for retaining a Wells Fargo money market fund "without adequately considering non-proprietary alternatives," adding that this fund has experienced "more than a decade of underperformance and high fees."
"We are reviewing the allegations but have no further comment," company spokesman Peter Gilchrist said in an email.
The Wells Fargo &. Co. 401(k) Plan, San Francisco, had assets of $39.5 billion as of Dec. 31, 2018, according to the latest Form 5500.